DEAR BOB: We don't have very much cash for a down payment on a home -- just about $4,500. We talked to a real estate agent who suggested that we buy a home through the lease-with-option-to-purchase method. It just happened that she had a home available on a lease-option. The way the deal works, she says, is that we put of $4,000 "consideration for the option."
It is to be a three-year option at a purchase price agreed upon now. We would pay $550 a month rent, half of which applies to the option purchase price. But we are to pay all maintenance and property taxes on the house. We're wondering if there is some catch. James M., Rockville.
DEAR JAMES: Consider yourself fortunate that you found a smart agent who understands lease-options. Many don't, so they discourage potential buyers from even thinking about lease-options. Grab that "good deal" before someone else like me does.
For the buyer, the advantages of a lease-option are (1) you lock in the purchase price today, (2) it's usually cheaper to pay rent than to make mortgage payments, (3) you'll benefit from the appreciation in market value between now and time of option exercise, (4) it takes less cash to get into a lease-option and (5) if you decide not to buy, the option can be assigned (sold) unless prohibited by its terms.
For the seller, lease-option advantages include (1) tax-free use of the option consideration money until either the option is exercised or it expires unused, (2) monthly rent payments cover the payments on the existing mortgage, (3) the tenant pays the maintenance and property taxes, thus reducing or eliminating the negative cash flow problem, (4) with a substantial option consideration payment, you can consider the house sold and (5) tax advantages of a delayed sale and possibility of an installment sale if the seller wishes.
I've used options for many years. They work out very well. However, I've found that real estate agents resist them because they often have to wait for all or part of their commission until the option is exercised. But as you found out, smart agents suggest lease-options to increase their sales and to provide for future income, too.
DEAR BOB: I am buying a condominium in Florida, but I would prefer not to visit there this time of year to close the purchase. I hear it's very hot and muggy. The realty agent assures me that the sale can be handled by mail. But how can I be sure of getting good title if I don't go there in person to finalize the purchase? Morris V., Silver Spring.
DEAR MORRIS: Property buyers should insist on obtaining an owner's title insurance policy. "It's cheap "peace of mind insurance."
The Florida realty agent can probably recommend a title insurance firm that has a local affiliate in your town. All the papers can be sent to the local office for your signature or, if you prefer, the entire transaction can be handled by mail through the Florida office of a title insurance firm. Either way, title insurance is your best guarantee that you will obtain good title to your new condominium.